Raise the Economy Threat to High

[Guest guest]

http://www.alternet.org/election04/19473/

 

Raise the Economy Threat to " High "

By Stephen Pizzo, News for Real

 

Posted on August 6, 2004,

http://www.alternet.org/story/19473/

 

I scribbled a note on my calendar: " Bush lost

re-election today. "

 

Baring a major gaff by the opposing team, today's

bombshell job report has exposed once and for all the

fraudulent claim that the U.S. economy is in recovery.

Wall Streeters headed for the bomb shelters this

morning after learning that U.S. employers were only

able to add a paltry 32,000 workers to payrolls in

July — just a bit short of the 215,000 to 240,000 the

administration had projected would be created last

month.

 

As you try to grapple with the significance of these

numbers keep in mind that the economy has to create

150,000 new jobs each month just to keep up with

natural population growth. And, if you want to keep

the economy from slumping into recession employers

have to create 200,000 new jobs each and every month.

 

The bad July news now makes three months running that

the administration has failed to produce the robust

job growth promised its $1.6 trillion in tax cuts.

Trickle-down has, as it did under Reagan, only

produced chuck-full reservoirs at the top and drought

at bottom. If anything should trickle down it's only

because someone's reservoir sprung a leak.

 

I have warned for months that we should not to confuse

the spurt of economic activity created last year by

the Bush tax cuts with a sustainable recovery. Mailing

refund checks to a hundred million consumers will

always spark a round of spending. But, unless we are

ready to keep mailing those checks that spending will

disappear quickly. We didn't, and it did.

 

So, the trickle-down chickens have once again come

home to roost.

 

This morning news included the following other

indicators:

 

* The New York Stock Exchange index, American Stock

Exchange index and the Russell 2000 index of

smaller-company stocks all tumbled. Declining issues

outnumbered advancing ones by 8 to 3 on the NYSE.

 

* The price of the Treasury's 10-year note rose

sharply marking a flight to safety by savvy investors.

And the already nervous precious metals investors

rushed out to buy more gold which now stands near $400

an ounce.

 

* And rising energy prices will further dampen

economic growth. Oil for September delivery settled at

$44.41, up $1.58 a barrel.

 

Earlier this week I published a complete explanation

why I thought the administration was wrong when they

claimed we were enjoying a robust recovery. Several

readers wrote complaining that I took it down before

they could read it, so what better time than today –

the day Bush lost re-election – to reprint it.

 

( " Repurposed " From August 3)

 

I think it may be time to adopt a second color-coded

warning system, so I will. I am hereby unveiling the

Economic Threat Level System. So as not to reinvent

the wheel we will use the same colors as the Terrorism

Threat Level System already in place. That indicator

was recently bumped from " Elevated " (Yellow,) to

" High " (Orange.) Here at the new Economic Threat

Agency we scanned this morning's financial news and

have decided to kick things off with a burnt orange –

a threat level somewhere between Elevated and High.

The intelligence reports that contributed to this

decision were fresh from this morning's business

headlines:

 

U.S. stocks opened lower on Wednesday after crude

oil hit a new high on worries of scarce supplies.

 

Analysis: Both US oil companies and the world's

largest oil source, Saudi Arabia, have been cooking

their books, though for different reasons. Shell Oil

recently got caught inflating its oil reserves by a

staggering 5 billion barrels in order to bolster the

company's stock price. The Saudis have been lying

about how much oil they still have underground in

order to maintain its political leverage over the

oil-addicted US. The fact is that we all knew that

someday demand for oil would outstrip supply, and that

day has arrived. Both China and India are

industrializing and are demanding their fair share of

the black stuff. In the old days the US could ring up

a prince in the Sandpile Kingdom and ask they turn the

spigot up a bit to ease prices. But the Saudis are now

hoarding what oil they have left. Which explains the

next headline.

 

Oil prices surged to yet another record high on

Wednesday, battering stock markets and helping keep up

demand for government bonds as investors pondered

pricey crude's impact on world economic growth. U.S.

light sweet crude touched $44.28 a barrel – the

highest price since oil futures were launched on the

New York Mercantile Exchange in 1983.

 

Analysis: Duh!

 

New applications for U.S. mortgages eased last

week with a dip in refinancing despite steady 30-year

mortgage rates, an industry group said on Wednesday.

 

Analysis: Homeowners have been maintaining middle

class life styles with cash-out refi's. They paid off

their original mortgage by taking out a larger one at

lower rates. The extra cash, equity from appreciation,

went to improve their homes and other major purchases.

This spending contributed to a short up tick in

economic activity. But now tapped out, and saddled

with an even larger mortgage – many with adjustable

rates poised to increase – homeowners are retrenching

and are no longer able to fuel further growth. Which

explains the next headline.

 

American consumer spending in June unexpectedly

plunged by the steepest margin since the September 11,

2001 attacks, government figures showed.

 

Analysis: It's not just homeowners who are tapped out.

Those who did not have home equity to tap have used

credit cards to maintain their pre-2001 lifestyles.

One credit expert described credit cards as " Yuppie

food stamps, " a way to maintain standard of living

young workers have come to consider an entitlement.

U.S. consumer debt has reached staggering levels after

more than doubling over the past 10 years. According

to the most recent figures from the Federal Reserve

Board, consumer debt has finally passed the $2

trillion level representing credit card and car loan

debt, but excluding mortgages, of nearly $20,000 per

US household. And, defaults and personal bankruptcies

are also at record highs and promise to get worse, as

the next story indicates.

 

Layoffs in the United States rose 8 percent in

July from the previous month, a report said on Monday,

as the job market recovery struggled to gain momentum.

 

Analysis: A free market economy operates just like a

natural world eco-chain - trouble anywhere along the

chain quickly cascades throughout the entire system.

Consumers under stress stop spending, orders for goods

slow causing wholesalers to cut future orders from

manufacturers, who lay off workers. Those workers then

come under stress and stop spending, which then

triggers the next downward cycle, as indicated by the

next story.

 

U.S. houses were less affordable in the second

quarter than in the prior quarter because of rising

home prices and interest rates.

 

Analysis: Hey, isn't this where we started, with

homes? You betcha. Rock bottom interest rates over the

past three years ignited inflation in residential real

estate – good news for homeowners who saw their paper

wealth increase, but bad news for those who wanted to

buy their first home. These would-be homeowners are

now about to get hit with a double whammy. First home

prices screamed past their price range and now, while

prices are cooling a bit, interest rates are on the

way up meaning that even a lower prices will not help

much because the monthly payments are too high, which

explains the next story.

 

Outlays for U.S. construction fell unexpectedly in

June as spending on housing dropped for the first time

in 16 months, a government report showed on Monday.

 

Analysis: Fewer buyers who can qualify for a new home

mean fewer new homes will be built. This will result

in construction layoffs – one of the few remaining

blue-collar jobs in America where a person can earn a

decent wage. Advice to construction workers seeking a

new job: hard hats not required at Wendy's.

 

One final piece of intel on the economy. Our

operatives on Wall Street have been tracking sentiment

among those who bet their own and their client's

fortunes daily on the direction things are heading,

and the picture they draw is not a pretty one. The Dow

Jones 90-Day moving average has been moving — down,

down, down for the past six months. This represents

the best guess by frontline investors of what's in

store for the economy just over the horizon.

© 2004 Independent Media Institute. All rights

reserved.

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